Bank Of England Split 8-1 On QE

With a majority of 8, the Bank of England's policymakers voted to maintain quantitative easing unchanged at the start of the year, as they saw limited stimulus to the economy from further easing.

David Miles repeated his call for a GBP 25 billion increase in QE, the minutes of the meeting published on Wednesday showed. According to Miles, the degree of slackness in the economy provide scope for easing without fueling inflation.

So an easing of monetary policy, in part by discouraging any further appreciation of sterling, could help the rebalancing process and avoid potentially lasting destruction of productive capacity and increases in unemployment, he said.

Meanwhile, policymakers led by Governor Mervyn King unanimously decided to retain the record low 0.50 percent interest rate. The meeting was held on January 9 and 10.

Most members said it was not necessary at this meeting to change either Bank Rate or the size of the asset purchase programme in order to meet the inflation target in the medium term.

In a speech in Belfast yesterday, King said the central bank is ready to provide more stimulus to the economy, if needed. But the minutes revealed that members were uncertain about the impact on more asset purchases on nominal demand.

Developments since December boosted confidence of most policymakers. The minutes suggested that further quantitative easing is unlikely in the near term.

"While these developments had not substantially altered the balance of risks associated with maintaining and increasing the size of the monetary stimulus, they had strengthened the belief of some of these members that no further asset purchases were required at the current juncture," the minutes said.

With economic recovery likely to remain fragile and limited, IHS Global Insight's Chief UK economist Howard Archer said he expects the Bank of England to ultimately give the economy a further helping hand with a final GBP 50 billion of QE sometime during the first half of 2013.